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For some values of “interesting”: part the second

October 8, 2012

OK then, let’s all turn to page 48 of the Financial Policy Committe: Macro Prudential Tools consultation where the 13-page Impact Assessment for the proposal is published.

First of all, note the RPC Opinion, which is that this is an “amber” IA, on a three category “traffic light” scale of Red-Amber-Green.  Now, I don’t know about your driving skills, but I know that when I took the test, Amber meant stop, provided it’s safe to do so.  However the Regulatory Policy Committee, the panel of independent experts who assess the quality of the evidence underlying impact assessments before they’re published, obviously work to a different set of traffic lights.  Because their amber means “fit for purpose” but with issues that ought to be put right:

Under the RPC’s traffic light system, if it is ‘Fit for Purpose,’ it is classified as either ‘Amber’ or ‘Green’. ‘Amber’ is used to denote an IA with areas of concern that should be corrected but which is still ‘Fit for Purpose’. If an IA is classified ‘Red’ it is ‘Not Fit for Purpose’ – the RPC has major concerns over the quality of evidence and analysis.

So this IA has areas of concern that should be corrected.  Hmmm.

Well for me the first one is the cost of the preferred option, where the total net present value of the proposal is given as £68,600m.  No, you read it right. Sixty-eight point six billion.

Now I’m baffled by this.  I know I’m easily baffled, particularly by government gobbledegook, but what on earth is the Financial Policy Committee’s macro-prudential toolkit going to involve that will cost sixty-eight point six billion?  How much are these people going to be paid, for heaven’s sake!

I suspect the answer is that the figure doesn’t represent the cost of setting up and operating the committee, duh.  It’s suspiciously close to the figure we’ve (where “we” means “British citizens”) been compelled to “invest” in the two failed banks, RBS and Lloyds but that can’t be it, surely?  I’m hoping the Treasury analysts who put the figures up are going to be allowed to respond to this blog and I’m not going to have to put in an FoI request to explain what they’re talking about <waves to the Treasury>

Theoretically, the IA should show the cost to businesses – that’s the basic theology of IA anyway, that the government shouldn’t make regulatory decisions that are going to cost businesses money without working out the costs and benefits first.

All right, let’s just assume I’m having a Deeply Stupid moment and the reason we’re spending sixty-eight point six billion quid is transparently obvious to everyone except me and move along.

Next look at “what policy options have been considered”.

“Two policy options have been considered”.  I call bullshit.  Basically the document has been prepared on a take it or leave it basis – do this, or do nothing – when actually the whole point of using “better regulation” mechanisms like impact assessment and consultation is to generate and consider the evidence in favour of a range of options.  You could (off the top of my head)

  • set up a separate body, not part of the Bank of England at all
  • let the Treasury operate macro-prudential policy
  • make it (once more?) part of the Chancellor’s job
  • set up a kind of “Cobra” committee of MPs to do the job
  • form a citizen’s jury
  • submit ourselves to the EU or US mechanisms
  • set up another Bretton Woods type conference with a view to merging the EU and US mechanisms and forming some kind of world macro-prudential finance organisation

Hey, I didn’t say they were GOOD options, I said they were OPTIONS, and the point of the exercise is, surely, to think of all the possibilities and then decide between them.  Evidence based policy – look at the research, the evidence, that’s out there, and then form a judgement.  Not, you know, policy based evidence, where you decide what you want to do and then consult on evidence to support it!

(Part three will be the consultation response I actually sent)

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